Airbus SAS, based in Toulouse, France, is a major airplane manufacturer, producing around half of the world’s jet airliners. It was formally established in 1970 as a European consortium whose goal was to gain a share of the aircraft construction market dominated till then by the US. It began as a consortium of French and German companies, to be joined later by Spanish and British companies.
In 2000, the Airbus consortium became an integrated company, 80 per cent of it being owned by EADS , the European Aeronautic Defence and Space Company NV. EADS itself came into being in the same year as a result of a merger between a German aerospace and defence company, a Spanish aircraft company and a French aerospace company. EADS develops and markets civil and military aircraft, as well as communications systems, missiles, space rockets, satellites, and related systems. The remaining 20 per cent of Airbus was at the time owned by BAE systems (the acronym is derived from British Aerospace Engineering), successor to a number of British aircraft, defence electronics and warship manufacturers.
The Airbus website ( http://www.airbus.com ) gives a detailed account of the development of the company and of the aircraft it has produced. The company has become global in nature, with fully owned subsidiaries in the United States, China, Japan and in the Middle East, spare parts centres in Hamburg, Frankfurt, Washington, Beijing and Singapore, training centres in Toulouse, Miami, Hamburg and Beijing, and more than 150 field service offices around the world. Apart from the importance of technology, the website refers to the special experience and expertise that come from more than 100 nationalities represented among its 59,000 employees.

For an Airbus employee it is usual to work side by side with people from a range of cultures. Career advancement within the company can take an employee not just to another floor or another building – but to another country.
Airbus takes pride in the diversity of its employees, valuing the special experience and expertise people from different backgrounds bring to the industry. The company thrives on the mix of ideas, vision and knowledge such a combination of cultures creates. At the same time, it encourages employees to develop their individual talents and experience and to be proud of their roots.

The company has produced a series of successful aircraft, including the world’s first twin-engine wide-body double-deck A380, the most technologically advanced plane in the world today.
The development of such highly sophisticated aircraft required a reorganisation of the company to improve co-ordination, reduce the costs of production and the time between conception of planes and their introduction into service. The French, German, British and Spanish partners, who had operated independently, merged their plane-making assets in 2001 to form Airbus SAS.

Delays in production

Nevertheless, there were considerable problems in bringing a major new product, the A380, to the market.
A two-year delay and a consequent loss in profits of €2 billion forced the company to make drastic cuts in the size of its workforce, to close plants and to outsource many more aircraft parts.
The extract below is taken from an article written by Xavier Vives, a professor of economics and finance at IESE Business School, Barcelona, Spain, It focuses on the role of ‘economic patriotism’ in the running of Airbus.

Traditionally, the workforce at the aircraft manufacturer is geographically distributed in proportion to national ownership stakes. It is hard to make sense of this from the point of view of productive efficiency. It is an instance of economic nationalism, whereby governments distort private transactions among economic actors by dis criminating against foreigners in the name of the national interest.

Economic motives include the preservation of employment or the attraction of economic activity to a certain area.

Strategic motives include national security or attempts to capture rents abroad in monopolistic markets. In many circumstances the patriotic approach proves ineffective because it conflicts with economic efficiency, but its endurance derives from protection of the interests of local lobbies. Politicians benefit from the revolving door between political office and the boardroom or by catering to a clientele with a view towards re-election. [. . .]
The damage caused by economic nationalism includes inefficiency and poor corporate governance. When EADS, parent company of Airbus, was created, it was headed by two chief executives, German and French. In spite of the fact that tensions flourished, the twin-headed structure was maintained even after the crisis caused by problems in the development of the A380 began. As a result, Airbus’s reputation has been dented and it has fallen behind Boeing.
In other cases, cost-cutting measures are delayed as state aid comes to the rescue of the champion, or competition is distorted because government-supported companies have privileged access to infrastructure and procurement contracts. The market for corporate control suffers as takeover threats from potentially more efficient foreign companies are removed. Finally, national efforts end up being self-defeating as other countries react in kind, neutralizing the initial attempt to gain an advantage.

One of the causes of the delay in the production of the A380 was the design of the complex wiring system for the aircraft. Sam Davis gives an insight into co-ordination problems.

You wouldn’t expect a wiring problem to delay delivery of an airplane, but that is what has happened.
To understand why wiring is critical, you have to know that there are almost 1,200 functions to control the plane, which takes 98,000 wires and 40,000 connectors. The digital design system has 500,000 models, and all those must be kept in sync by mismatched computer-design systems in different countries.

Further complicating aircraft design – nose sections are built in France, fuselages in Germany, wings in Great Britain and tails in Spain, Airbus’ A380 aircraft sections will be transported on a special ship from sites in Broughton (UK), Hamburg (Germany), Puerto Real (Spain) and St. Nazaire (France) for final assembly in Toulouse (France).

As reported in the January 2007 IEEE Spectrum article, ‘Manufacturing Mayday,’ by Alexander Hellemans, designing the aircraft was much more difficult than anticipated. Engineers in Germany and Spain used the older V4 version of the CAD program to design the wiring whereas engineers in France and England used the newer V5 version. Although the software developer said the two versions were compatible, data was lost when transferring files from one system to the other. Another complication: the French were familiar with the software whereas the Germans did not have as much experience with it.

Because of the wiring design software compatibility issues, problems arose when incorporating wiring changes in the fuselage sections in Germany.

A proposed merger
In 2012, EADS devised a plan to merge with BAE systems, the company which had once owned 20 per cent of EADS’s Airbus subsidiary. BAE had taken partial ownership when Airbus became an integrated company in 2000. EADS took the remaining 80 per cent. In 2006, however, BAE had sold its stake in Airbus. At the time, UK commentators generally considered this to be a smart move since it looked as if the civil aircraft business was about to enter a cyclical decline. The sale would allow BAE to increase its funding of acquisitions, especially of companies in the massive US defence sector. Some observers also considered BAE’s withdrawal to be related to its inability to have a real say in the way EADS was being run. EADS was said to be too heavily influenced by the national interests of the dominant French and German partners. Although heavily involved in the construction of Airbus aircraft, BAE’s influence on decision-making in the boardroom was limited. There was also, it was felt, one more factor involved in BAE’s departure: the UK’s ‘special relationship’ with the USA.
The company wanted to maintain and extend this relationship: wasn’t a tie-up with US concerns preferable to a partnership within a European consortium?
So BAE left Airbus and went its own way to become a major defence, security and aerospace company with operations worldwide. It is, at the time of writing, one of the largest suppliers to the United States Department of Defence. However, it still maintains its important manufacturing role in Airbus, being responsible for the construction of the wings for all Airbus aircraft.
In 2012, the British government rethought its position with regard to the future of BAE systems. The following article from the Financial Times describes the circumstances surrounding the British change of mind......

Questions

1. How would you define the concept of ‘economic patriotism’? What role do you think it may have played in the problems besetting Airbus and the decision not to go ahead with the EADS–BAE merger?

2. To what extent do you consider that the wiring problems with the A380 were a reflection of the way the Airbus company was organised, despite the merger of the national components in 2001?

3. The author of the article ‘For EADS partners, culture still matters’ refers to Hofstede’s ‘power distance’
and ‘uncertainty avoidance’ scores for the major countries involved in the Airbus project. To what extent do you consider it valid for these scores to be used to support the author’s arguments?

4. When examining the culture of its company, Airbus mentions on its website (see above) that it ‘thrives on the mix of ideas, vision and knowledge such a combination of cultures creates’.
How do you imagine the way in which the company has exactly thrived, despite the events described in this activity?

5. What elements in these texts about the Airbus consortium are reflected in the description of the culture clusters in this chapter?

6. What other explanations can you find for the change in name from ‘EADS’ to ‘Airbus’?